Ventas Reaches Agreements with Kindred and ScionHealth

Rhea-AI Summary

Ventas (NYSE: VTR) has entered into agreements with Kindred Healthcare and ScionHealth regarding 23 long-term acute care hospitals (LTACs) set to mature on April 30, 2025. Key points:

• Initial annualized cash rent for LTACs: $80 million starting May 1, 2025
• Annual rent escalation: 2.75% through April 30, 2030
• Ventas acquired 5 performing LTAC assets for $189 million
• New assets added to Kindred Master Lease with $16 million annual cash rent
• Expected to strengthen EBITDARM to rent coverage to at least 1.3x
• Anticipated $0.01 per share impact on Normalized FFO from new investment

The agreements aim to enhance patient care, strengthen the Kindred Master Lease, and improve Kindred's credit profile while providing upside potential for Ventas.

Positive

• Secured $80 million annual cash rent for 23 LTACs starting May 1, 2025
• Annual rent escalation of 2.75% through April 30, 2030
• Acquired 5 performing LTAC assets for $189 million, generating $16 million annual cash rent
• Potential for additional revenue-sharing rent if LTAC revenue exceeds thresholds
• Received warrants for 9.9% of ScionHealth's common equity
• Expected to strengthen EBITDARM to rent coverage to at least 1.3x
• Anticipated $0.01 per share positive impact on Normalized FFO from new investment

Negative

• $29 million (27%) annualized cash rent reduction for 23 LTACs starting May 1, 2025

Financial Analyst

The agreements between Ventas, Kindred and ScionHealth are strategically significant for all parties involved. For Ventas, the deal secures a stable revenue stream from the LTACs until 2030, with an initial $80 million annual base rent and 2.75% yearly escalations. The revenue-sharing provision and equity warrants offer potential upside. However, the 27% rent reduction starting May 2025 is a notable concession. The $189 million acquisition of five LTAC assets, yielding $16 million in annual rent, partially offsets this reduction. The transaction's impact on 2024 Normalized FFO appears minimal, with only a $0.01 per share benefit from the new acquisition. Investors should monitor how these agreements affect Ventas's long-term growth prospects and dividend sustainability.

Healthcare Real Estate Expert

This deal demonstrates Ventas's commitment to its healthcare real estate portfolio, particularly in the LTAC sector. The extension of the lease term to 2030 provides operational stability for these critical care facilities. The agreement to improve EBITDARM to rent coverage to at least 1.3x is crucial, as it enhances the financial health of the operator and reduces risk for Ventas. The acquisition of five performing LTAC assets is a strategic move to expand Ventas's footprint in this sector. However, the rent reduction on the 23 LTACs is significant and reflects the challenges facing the LTAC industry. The revenue-sharing provision and equity warrants offer potential upside but are dependent on Kindred's performance and ScionHealth's growth.

Credit Analyst

From a credit perspective, these agreements have mixed implications. The commitment from ScionHealth to use proceeds to improve its credit profile is positive. The strengthening of the EBITDARM to rent coverage to 1.3x under the Master Lease is a critical improvement that reduces default risk. However, the 27% rent reduction on the 23 LTACs suggests ongoing financial pressures for Kindred. The extension of ScionHealth's guarantee on Kindred's obligations provides some reassurance to Ventas. The equity warrants granted to Ventas could potentially align interests but also introduce additional complexity to the relationship. Overall, while these agreements aim to improve Kindred's credit profile, they also highlight the ongoing challenges in the LTAC sector.

CHICAGO--(BUSINESS WIRE)-- Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today announced that it has entered into agreements (collectively, the “2024 Kindred Agreements”) with Kindred Healthcare, LLC (with its subsidiaries, “Kindred”) and its parent companies (“ScionHealth”), including regarding the 23 long term acute care hospitals whose lease term is scheduled to mature on April 30, 2025 (the “LTACs”) under the existing Master Lease between Ventas and Kindred (the “Kindred Master Lease”).

The transactions under the 2024 Kindred Agreements are intended to enhance the facility environment for patient care, strengthen the Kindred Master Lease, provide upside to Ventas and enable Kindred to improve its credit profile.

Key terms of the 2024 Kindred Agreements are as follows:

1. The initial annualized cash contractual base rent for the LTACs will be $80 million starting May 1, 2025, consistent with the Company’s previously announced expectations, and rent will escalate annually by 2.75% through the extended lease maturity date of April 30, 2030. Ventas also has the right to receive additional revenue-sharing rent annually if revenue at these assets exceeds certain thresholds, and ScionHealth has granted Ventas warrants for 9.9% of its common equity exercisable at the pre-transaction value of the common equity. Kindred has agreed to pay full contractual cash rent through April 2025 on the LTACs.

Ventas estimates, on a preliminary basis, the following rental impacts for the LTACs, consistent with its previously announced expectations:

($ in millions)

23 LTACs	Q2 2024 Annualized Rent		Annualized Rent Under the Agreements
	Cash	GAAP	Cash*	GAAP
Rent	$109	$100	$80	$87
* Represents a $29 million (27%) annualized cash rent reduction commencing May 1, 2025.

2. Ventas has also acquired the real estate and related property of five performing LTAC assets for a gross purchase price of $189 million. The assets will continue to be operated by Kindred and were added to the existing Kindred Master Lease for an initial 10-year term. Annual cash rent of $16 million commenced immediately and will escalate annually by 2.75%. ScionHealth has agreed to use the proceeds to further improve its credit profile and for other bona fide corporate purposes.

The transactions should strengthen EBITDARM to rent coverage under the Master Lease to at least 1.3x. Kindred’s obligations under the Master Lease will continue to be guaranteed by ScionHealth.

Ventas expects the per share aggregate non-cash impact to its 2024 Normalized FFO relating to the LTAC lease extension to be in line with its previously provided 2024 guidance, commencing in the third quarter of 2024. The annualized Normalized FFO impact of the investment in performing LTACs, funded wholly with equity, is expected to be approximately $0.01 per share. Any additional cash and GAAP impacts to the Company’s 2024 Normalized FFO per share from other aspects of the transactions contemplated by the 2024 Kindred Agreements are not expected to be material.

About Ventas

Ventas, Inc. (NYSE: VTR) is a leading S&P 500 real estate investment trust enabling exceptional environments that benefit a large and growing aging population. With approximately 1,350 properties in North America and the United Kingdom, Ventas occupies an essential role in the longevity economy. The Company’s growth is fueled by its approximately 800 senior housing communities, which provide valuable services to residents and enable them to thrive in supported environments. The Ventas portfolio also includes outpatient medical buildings, research centers and healthcare facilities. The Company aims to deliver outsized performance by leveraging its unmatched operational expertise, data-driven insights from its Ventas OI^TM platform, extensive relationships and strong financial position. Ventas’s seasoned team of talented professionals shares a commitment to excellence, integrity and a common purpose of helping people live longer, healthier, happier lives.

Cautionary Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements of expectations, beliefs, future plans and strategies, anticipated results from operations and developments and other matters that are not historical facts. Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “assume,” “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “opportunity,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof.

Forward-looking statements are based on management’s beliefs as well as on a number of assumptions concerning future events. You should not put undue reliance on these forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made. We urge you to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance, including those made below and in our filings with the Securities and Exchange Commission, such as in the sections titled “Cautionary Statements — Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 and our subsequent Quarterly Reports on Form 10-Q.

Certain factors that could affect our future results and our ability to achieve our stated goals include, but are not limited to: (a) our ability to achieve the anticipated benefits and synergies from, and effectively integrate, our completed or anticipated acquisitions and investments; (b) our exposure and the exposure of our tenants, managers and borrowers to complex healthcare and other regulation, including evolving laws and regulations regarding data privacy and cybersecurity and environmental matters, and the challenges and expense associated with complying with such regulation; (c) the potential for significant general and commercial claims, legal actions, investigations, regulatory proceedings and enforcement actions that could subject us or our tenants, managers or borrowers to increased operating costs, uninsured liabilities, including fines and other penalties, reputational harm or significant operational limitations, including the loss or suspension of or moratoriums on accreditations, licenses or certificates of need, suspension of or nonpayment for new admissions, denial of reimbursement, suspension, decertification or exclusion from federal, state or foreign healthcare programs or the closure of facilities or communities; (d) the impact of market and general economic conditions on us, our tenants, managers and borrowers and in areas in which our properties are geographically concentrated, including macroeconomic trends and financial market events, such as bank failures and other events affecting financial institutions, market volatility, increases in inflation, changes in or elevated interest and exchange rates, tightening of lending standards and reduced availability of credit or capital, geopolitical conditions, supply chain pressures, rising labor costs and historically low unemployment, events that affect consumer confidence, our occupancy rates and resident fee revenues, and the actual and perceived state of the real estate markets, labor markets and public and private capital markets; (e) our reliance and the reliance of our tenants, managers and borrowers on the financial, credit and capital markets and the risk that those markets may be disrupted or become constrained; (f) the implementation and impact of regulations related to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and other stimulus legislation, including the risk that some or all of the CARES Act or other COVID-19 relief payments we or our tenants, managers or borrowers received could be recouped; (g) our ability, and the ability of our tenants, managers and borrowers, to navigate the trends impacting our or their businesses and the industries in which we or they operate, and the financial condition or business prospect of our tenants, managers and borrowers; (h) the risk of bankruptcy, inability to obtain benefits from governmental programs, insolvency or financial deterioration of our tenants, managers, borrowers and other obligors which may, among other things, have an adverse impact on the ability of such parties to make payments or meet their other obligations to us, which could have an adverse impact on our results of operations and financial condition; (i) the risk that the borrowers under our loans or other investments default or that, to the extent we are able to foreclose or otherwise acquire the collateral securing our loans or other investments, we will be required to incur additional expense or indebtedness in connection therewith, that the assets will underperform expectations or that we may not be able to subsequently dispose of all or part of such assets on favorable terms; (j) our current and future amount of outstanding indebtedness, and our ability to access capital and to incur additional debt which is subject to our compliance with covenants in instruments governing our and our subsidiaries’ existing indebtedness; (k) risks related to the recognition of reserves, allowances, credit losses or impairment charges which are inherently uncertain and may increase or decrease in the future and may not represent or reflect the ultimate value of, or loss that we ultimately realize with respect to, the relevant assets, which could have an adverse impact on our results of operations and financial condition; (l) the risk that our leases or management agreement are not renewed or are renewed on less favorable terms, that our tenants or managers default under those agreements or that we are unable to replace tenants or managers on a timely basis or on favorable terms, if at all; (m) our ability to identify and consummate future investments in, or dispositions of, healthcare assets and effectively manage our portfolio opportunities and our investments in co-investment vehicles, joint ventures and minority interests, including our ability to dispose of such assets on favorable terms as a result of rights of first offer or rights of first refusal in favor of third parties; (n) risks related to development, redevelopment and construction projects, including costs associated with inflation, rising or elevated interest rates, labor conditions and supply chain pressures, and risks related to increased construction and development in markets in which our properties are located, including adverse effect on our future occupancy rates; (o) our ability to attract and retain talented employees; (p) the limitations and significant requirements imposed upon our business as a result of our status as a REIT and the adverse consequences (including the possible loss of our status as a REIT) that would result if we are not able to comply with such requirements; (q) the ownership limits contained in our certificate of incorporation with respect to our capital stock in order to preserve our qualification as a REIT, which may delay, defer or prevent a change of control of our company; (r) the risk of changes in healthcare law or regulation or in tax laws, guidance and interpretations, particularly as applied to REITs, that could adversely affect us or our tenants, managers or borrowers; (s) increases in our borrowing costs as a result of becoming more leveraged, including in connection with acquisitions or other investment activity and rising or elevated interest rates; (t) our reliance on third-party managers and tenants to operate or exert substantial control over properties they manage for, or rent from, us, which limits our control and influence over such operations and results; (u) our exposure to various operational risks, liabilities and claims from our operating assets; (v) our dependency on a limited number of tenants and managers for a significant portion of our revenues and operating income; (w) our exposure to particular risks due to our specific asset classes and operating markets, such as adverse changes affecting our specific asset classes and the real estate industry, the competitiveness or financial viability of hospitals on or near the campuses where our outpatient medical buildings are located, our relationships with universities, the level of expense and uncertainty of our research tenants, and the limitation of our uses of some properties we own that are subject to ground lease, air rights or other restrictive agreements; (x) the risk of damage to our reputation; (y) the availability, adequacy and pricing of insurance coverage provided by our policies and policies maintained by our tenants, managers or other counterparties; (z) the risk of exposure to unknown liabilities from our investments in properties or businesses; (aa) the occurrence of cybersecurity threats and incidents that could disrupt our or our tenants’, managers’ or borrower’s operations, result in the loss of confidential or personal information or damage our business relationships and reputation; (bb) the failure to maintain effective internal controls, which could harm our business, results of operations and financial condition; (cc) the impact of merger, acquisition and investment activity in the healthcare industry or otherwise affecting our tenants, managers or borrowers; (dd) disruptions to the management and operations of our business and the uncertainties caused by activist investors; (ee) the risk of catastrophic or extreme weather and other natural events and the physical effects of climate change; (ff) the risk of potential dilution resulting from future sales or issuances of our equity securities; and (gg) the other factors set forth in our periodic filings with the Securities and Exchange Commission.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240916679178/en/

BJ Grant

(877) 4-VENTAS

Source: Ventas, Inc.

FAQ

What is the new annual cash rent for Ventas' 23 LTACs starting May 1, 2025?

The new annual cash rent for Ventas' 23 LTACs will be $80 million starting May 1, 2025, with an annual escalation of 2.75% through April 30, 2030.

How many additional LTAC assets did Ventas acquire from Kindred and for what price?

Ventas acquired 5 performing LTAC assets from Kindred for a gross purchase price of $189 million.

What is the expected impact on Ventas' (VTR) Normalized FFO per share from the new LTAC investment?

The annualized Normalized FFO impact of the investment in performing LTACs is expected to be approximately $0.01 per share for Ventas (VTR).

How will the EBITDARM to rent coverage be affected by the new agreements between Ventas and Kindred?

The transactions are expected to strengthen the EBITDARM to rent coverage under the Master Lease to at least 1.3x.

What additional benefits did Ventas (VTR) receive in the agreements with Kindred and ScionHealth?

Ventas received the right to additional revenue-sharing rent if LTAC revenue exceeds certain thresholds and was granted warrants for 9.9% of ScionHealth's common equity exercisable at the pre-transaction value.